Hedge fund rumors fly and commodities drop for the week

Major commodities suffered sizable losses for the week after a selloff Wednesday sparked by speculation that a hedge fund was forced to liquidate its positions. Two days later, concrete evidence to substantiate the rumor has been tough to pin down.

“Rumors did circulate earlier this week [that] a hedge fund was in trouble and forced to liquidate positions,” said John Person, president of NationalFutures.com, adding that he had heard speculation that an overseas fund based in London was heavily long on silver and gold.

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“The process is once losses mount, the fund needs to liquidate long positions or cover shorts,” he said, “in essence, causing a forced liquidation of all positions.”

The oil market “gets explained away on a gap in knowledge by phantom fund liquidation, which very well might end up being the case, but something that can’t be confirmed for weeks,” said Neal Ryan, managing partner at Ryan Oil & Gas Partners LLC.

And don’t expect the latest Commitments of Traders report from the U.S. Commodity Futures Trading Commission to provide any big hints, analysts said.

The COT report due late Friday covers data from the close of business on Tuesday, Feb. 19, so “this will be the snapshot from just before the downside break in prices,” said Tim Evans, an energy analyst at Citi Futures.

“In general, I’m expecting it to show either a further moderate long accumulation or perhaps some modest trimming of long positions – evidence that the prior flow buying was stalling or wavering, as a precursor to the wave of selling,” he said. Even so, “I doubt that we’ll really see much in the aggregate data that will stand out related to any one company’s position.”

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